Drought will make 2013 challenging for livestock producers

News
Jan 11, 2013
by DTN

Lingering effects from last summer’s drought will undoubtedly be the single biggest challenge for U.S. livestock producers in 2013.

Even if winter and spring bring snow and rain to replenish soil moisture, the effects on feed prices and animal numbers will last into the new year.

The drought will continue to devastate the beef cattle industry in terms of decreased available forage, as about 85 percent of the feed used to produce finished beef is forage, according to Terry J. Klopfenstein, professor of ruminant nutrition at the University of Nebraska-Lincoln. Besides the drought, forage supplies have been even further reduced by pasture and hay acres that have been plowed up and put into corn or soybeans.

Dairy-quality hay will be expensive and in tight supply in 2013, according to Robin L. Schmahl, DTN contributing dairy analyst and hedge and marketing specialist. Dairy-quality hay, which has been priced at an average of $130 to $140 per ton, is now selling between $250 and $300 a ton, he said.

Volatile grain prices will also challenge the swine industry and will likely cause fairly tight global feed supplies, according to Gerald Shurson, professor of swine nutrition and management at the University of Minnesota.

Livestock producers have a number of other challenges and concerns for 2013. A huge concern for all livestock sectors is the impending farm bill and what it will contain. Schmahl said that many issues vital to the dairy industry are in the farm bill, such as supply management provisions, margin insurance, the Milk Income Loss Contract, etc. Dairy was a key reason the old farm bill was extended as part of the fiscal package. Those issues carry forward into the new Congress.

Other challenges in 2013 for livestock producers could be difficulty with risk management due to price volatility, credit availability from lenders, possible hikes in interest rates and the economy.

With high feed prices and lower animal numbers, Klop fenstein is concerned that higher beef prices will cause consumers to shift to less expensive meats or to eat less meat.

Bill Roenigk, senior vice president for the National Chicken Council, said chicken companies will likely spend money on research development and try to invent new products to stimulate demand.

Lower animal numbers will be a challenge for all livestock segments this year.

Total numbers of beef cattle are lower because of the forage shortage, Klopfenstein said. The drought in the Southern Plains in 2011 and 2012 in the Midwest and Northern Plains resulted in a large number of cows being liquidated. Replacement animals are also scarce and some may need to be imported from Mexico and Canada, he said.

Dairy cow and pig numbers will decrease because of high feed costs, and the dairy industry will also see fewer cows in 2013 because of farm foreclosures, a trend Schmahl expects to continue for a while.

The hatchery supply flock is running very tight compared to historical standards, about 3 percent to 4 percent less than a year ago, Roenigk said. Because of genetic improvements, such as hens laying more eggs and eggs that are more fertile, that decrease may not be disastrous.

Prices

The most significant factor in livestock prices in 2013 will be the weather this growing season and whether enough moisture is received for successful crops and forage.

Schmahl said the outlook for dairy profit margins doesn’t appear to be good, as inputs will likely be higher and USDA is anticipating an all-milk price of just $1 per cwt. higher.

Pork producers have experienced some pretty significant losses at about $36 to $43 per head, Shurson said, “Most economists are predicting there will be higher pig prices by spring, but it’s going to take a while and a bit of pain and loss to get to that point,” Shurson said.

For the first half of 2013, Roenigk said the chicken industry will find it difficult to stay out of the red. The second half of the year, margins will depend on feed costs and whether the corn crop is adequate.

In 2013, the beef industry may see competition between domestic use and exports in light of lowered beef production. If other countries are willing to pay more for U.S. beef, that could raise prices and affect long-term domestic demand, Klopfenstein said.

While dairy exports were fairly strong in 2012, the new year may bring some small decreases, Schmahl said. The U.S. should maintain its cheese and whey markets, while butter sales are picking up because of lower prices.

Shurson said U.S. producers are producing more pork than ever, but the industry will have to rely on exports to combat little increase in domestic consumption. The export market for pork is fairly complex, he said, because of continuing issues with restrictions on pork in certain markets.

Roenigk is optimistic about chicken exports.

“Chicken exports could be up 5 percent to 10 percent next year, even though production will be down about 1 percent, according to USDA,” he said. “We will have an over-abundance of dark meat and leg quarters, but there are some countries, such as Mexico, China and

Africa, that want them and will pay better than domestic customers,” he said.

The overwhelming response experts had for producers in 2013 is to look for market opportunities to lock in feed prices as low as possible and to be innovative in finding possible alternative feed sources.

Schmahl said dairies need to identify opportunities to market their milk and explore alternate feeds such as canola, or silage from wheat, rye or oats. Some dairies have experimented with using confectionary waste such as chocolates and candies, or dough items such as pizza crusts, he said.

With feed the largest factor in production costs, Shur son advised producers to work with feed companies and nutritionists to find “the right feed for the right pigs at the right time,” and to use risk management strategies to lock in ingredient quantity and prices.

Klopfenstein stressed that corn residue is a great opportunity in Nebraska and surrounding states. Grazing is the best way to use it, although producers can also harvest the residue and feed it in a dry lot situation. Corn residue works best when mixed with wet distillers grains, he said.

Klopfenstein’s other advice was two-fold: “Think survival—it’s going to get better”, and “Pray for rain.” — Cheryl Anderson, DTN

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